In Deleon v. Verizon Wireless, LLC, the California Court of Appeal upheld summary judgment in favor of Verizon, holding that it could recover certain payments against future advances on commissions.
Under its compensation plan, Verizon paid out unearned commissions in advance to its sales representatives. These commissions were not earned until the expiration of a chargeback period (in some instances up to one year), if the client did not cancel service during that period. If the client canceled during the chargeback period, the company could recover that advance on commission from future advances on commissions.
The putative class action plaintiffs in this case argued that recovery of commissions during the chargeback period violated Labor Code Section 223, prohibiting secret underpayment of wages, and sought Private Attorneys General Act (PAGA) penalties. The court recognized that Verizon (1) paid advances on commissions, not earned commissions; (2) clearly defined in its compensation plan how such commissions were earned (i.e., after expiration of the chargeback period and without cancellation of service); (3) explicitly explained the chargeback period; and (4) provided regular training on the compensation plan.
By emphasizing the importance of defining how commissions are earned, the court made clear that attempting to recover payment of earned commissions – as distinct from advances on commissions – would be unlawful because earned commissions are considered wages.